The municipality was created from Hammarö parish in 1863, and its territory has not been affected by the great municipal reforms of 1952 and 1971. With a land area of only 56.9 km² it is Sweden's 12th smallest, as well as the smallest in Värmland County.

The municipality consists of the islands Hammarön and Vidön and the adjacent archipelago. The name Hammarö, or Hammarön, literally means "Hammer Island", and has given the municipality its name. The island itself is 47 km² large, the third largest island of Lake Vänern, and located off the shore of Värmland, separated by the Klarälven river delta.

From Skoghall it is only 7 km to the city of Karlstad. Karlstad Municipality is the only municipality with bridge connections to Hammarö.

100 years ago the largest employers were all in the fishing sectors. Today, the company Stora Enso Skoghall, manufacturing cardboard boxes, has 950 employees. Second is Akzo Nobel Base Chemicals with 150, manufacturing chemical products.

While the vast majority of Hammarö's inhabitants live in a single urban area going by the Statistics Sweden designation of Skoghall, this urban area is split in two postal areas: Skoghall (western part) and Hammarö (eastern part). The name Skoghall is seldom used for the urban area in its entirety.

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